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How to design a Target Operating Model (TOM) [Updated 2019]

Once you've articulated your strategy, one of the next things to do is to design the organisation to deliver it. This is usually expressed in the form of a Target Operating Model (TOM). A TOM may be for a new organisation you're going to set up, or it may be the end state for a change programme to be applied to an existing organisation.

The general approach is to define the people, processes and technology required to deliver the strategy.

Process


The most common approach for identifying an organisation's processes for creating value is to use Value Chain methodology popularised by Michael Porter. This allows you to identify not only the core processes, such as manufacturing, sales and distribution, but also the supporting functions, such finance, IT and HR, all of which may be essential to the delivery of your strategy.

For each process, it is important to understand

  1. what the critical success factors (KSFs) and key performance indicators (KPIs) are - that is, what does 'good' look like in the performance of the process.
  2. what the inputs are and who provides them.
  3. what the outputs are and who receives or consumes them.
  4. the type of process: for example, processes may be classified as
    • unit or job processes, where units of work are processes one at a time from start to finish, like building houses or tailoring suits.
    • batch processes, where a defined number of units are processed together, like off-the-rack clothing, 
    • mass production processes, where units of work move in sequence through a number of stages, like assembling automobiles, or 
    • continuous processes, where output is continuous, like paper milling.
  5. anticipated volume and frequency of performance, and drivers of both.
  6. whether and how the process is required to be performed in a differentiated manner in order to deliver strategic value.

Once you identified and defined your processes, it should follow naturally what people and technology the processes will require.

People


For each process identified, identify the roles, numbers of people in each role, and skills, capabilities and knowledge required by each role. Consider also whether you will need to hire in new or additional people, provide additional training to existing people, or partner with organisations who already have the types of people you need.

You're then in a position to consider reporting lines, organisational design, governance and rewards (including compensation and benefits). Don't forget to think about where the people are or will be physically located, and what implications that might have for your organisation.

Finally, consider the impact of organisational values and culture.

See also:


Technology


When considering the technology you will need to support the processes, it is important to think not only of computer systems, but also manual systems, manufacturing systems and any other supporting technologies.

Consider also whether these systems and technologies exist and can be bought, licensed or rented, or whether you will have to develop bespoke solutions especially for your business. The more differentiated your processes are the more likely it is that you will need bespoke solutions, or that pre-existing solutions will require extensive customisation.

Finally, it is important to consider how these systems will be integrated and maintained (which should map back to your process view).

Extended approaches


There are a number of different ways in which you could extend this general people-process-technology approach.

Firstly, you could go beyond the convention of considering just people and technology, and consider all 7 dimensions encapsulated in the McKinsey 7S analysis or which people or Staff and technology or Systems are just two dimensions, but this is usually not necessary.

Secondly, you could adopt the POLISM model developed by Andrew Campbell, et al, at Ashridge Business School. POLISM stands for Process (or value chain), Organisation, Locations, Information Structure and Management system. As such, gives additional prominence to location and suppliers, and considers information and management systems more explicitly than it does technology.

Andrew then went on to propose an integration of the POLISM model and the Business Model Canvas, which I have previously written about in Introducing the Enhanced Business Model Canvas.

The Target Operating Model's role in business strategy execution


Your strategy implementation plan needs to consider all of the implications of the above: designing processes, hiring and training staff, acquiring or building up knowledge, and selecting, implementing, customising, building and/or integrating systems.

Designing a TOM is a significant piece of work. However, the real challenge lies in developing and implementing a TOM which actually delivers your strategy and differentiates your organisation from the competition.

StratNavApp.com, the online collaborative tool for strategy development and execution, integrates all of the tools mentioned above (Porter's Value Chain, including Process, People and Technology,  McKinsey 7S, and the Enhanced Business Model Canvas) to help you develop your Target Operating Model. It is free to use, so go ahead and give it a try.

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